need help on how to calculate return on total assets and return on equity. Compa

Question

need help on how to calculate return on total assets and return on equity.

Comparative financial statements for Weller Corporation, a merchandising company, for the year ending December 31 appear below. The company did not issue any new common stock during the year. A total of 980,000 shares of common stock were outstanding. The interest rate on the bonds, which were sold at their face value, was 12%. The income tax rate was 40% and the dividend per share of common stock was $0.40 this year. The market value of the company's common stock at the end of the year was $27. All of the company's sales are on account Weller Corporation Comparative Balance Sheet (dollars in thousands) This Year Last Year Assets Current assets: Cash Accounts receivable, net Inventory Prepaid expenses $ 4,568 5,440 9,150 8,920 2,460 16,200 10,600 1,980 Total current assets 33,34825,970 Property and equipment 7,800 7,800 Land Buildings and equipment, net 21,00020,800 28,80028,600 $62,148 $54,570 Total property and equipment Total assets Liabilities and Stockholders' Equity Current liabilities: Accounts payable Accrued liabilities Notes payable, short term $11,300 $ 9,200 1,600 480 960 480 12,740 11,280 8,750 21,490 20,030 Total current liabilities Long-term liabilities: Bonds payable 8,750 Total liabilities

Explanation / Answer

1. Gross margin percentage = Gross margin / Sales
= $36,000 / $97,000
= 37.1%

2. Net profit margin percentage =  Net profit margin / Sales
= $6,510 / $97,000
= 6.7%

3. Return on total assets = Net operating income / Average total assets
= [$11,900 / {($62,148 + $54,570)/2}]
= $11,900 / $58,359
= 20.4%

4. Return on equity = Net income / Average shareholder's equity
= [$6,510 / {($40,658 + 34,540)/2}]
= $6,510 / $37,599
= 17.31%

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